Collateralized borrowing and life-cycle portfolio choice
By: Paul Willen, Felix Kubler
Contributors: Kubler, Felix; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12309; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12309.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem.  We provide basic intuition in a two-period model and then solve a multi-period model computationally.  Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance.  In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models.  Our results do not depend on the specification of the collateralized borrowing regime: the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage.  We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle, that is, why most investors do not own stock"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/29/2006.

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